Appeal court backs law firm in ‘you’re fired’ retainer row
Solicitors are entitled to suspend work for clients who have not paid their bill in accordance with the contractual term of business agreed, the Court of Appeal has ruled in a key case on retainers.
The judgment, in favour of Hampstead, London, firm Cawdery Kaye Fireman & Taylor (CKFT), overturns the decision of the High Court, which had upheld the original ruling of costs judge Master O’Hare in September 2010.
The client, Mr Minkin, had instructed CKFT to represent him in relation to matrimonial matters. The firm gave Minkin a cost estimate which, due to unexpected events, was exceeded. Minkin had not been warned of this before it happened, as was his contractual right under the retainer, but it had been made clear to him to that estimate given was not a binding quote.
Minkin said he could not pay the fees until he had a costs order against his wife. After further correspondence, the firm said it could not continue to act because of the outstanding payments. Minkin ceased to instruct the firm and represented himself at the subsequent hearing, after which he applied for a detailed assessment of the bills.
The costs judge concluded that the solicitor had wrongfully terminated the retainer before the litigation had come to its end, and that, not having fulfilled an entire contract, was not entitled to further fees and had to repay the fees he had already received on account.
At the High Court, Mr Justice Cranston dismissed the firm’s appeal, saying: ‘The outcome may be harsh. But the fact is that it should have been made clearer in [the] retainer letter as to the nature of the engagement.'
Giving judgment in favour of CKFT, Lord Justice Ward in the Court of Appeal said: ‘Every solicitor will encounter, in one way or another, the kind of problem which gives rise to this appeal.’
He ruled that CKFT was entitled to suspend work pending payment of its bill, pursuant to their terms of business, concluding that the client had terminated the retainer. Ward said: ‘Were he [the client] Lord Sugar, dealing with his apprentices, he would be pointing his finger and saying, "you’re fired".’
He said: ‘There was no guarantee that the final charge wouldn’t exceed the estimate because there were many factors outside the solicitors’ control which might affect the level of costs. Refusal to pay cannot be justified on that ground.’
Moreover, he said, Minkin had been fully informed of his right to challenge any bill which he felt was excessive, but he did not do so. ‘Mr Minkin could not reasonably expect his solicitors to wait for payment until they had an order for costs made against Mrs Minkin. That is not the way the world works and Mr Minkin was well aware of that fact,’ said Ward.
The reality in this case, he said, was that Minkin was short of money and could not pay for his solicitors’ services in coping with a new and unexpected turn of events that complicated the case.
But he said: ‘The unexpected complication does not justify a refusal to pay a bill which became payable on presentation. The client was obliged by the payment terms set out on the terms of business to pay bills on presentation. He did not do so. That put him in breach.’
Ward ruled that Minkin had no reasonable justification for not meeting the bill presented to him. Consequently the solicitors were entitled to, and did, suspend the operation of the retainer pending receipt of monies on account of costs.
Agreeing, Lord Justice Elias said: ‘I have no doubt that Mr Minkin was justified in raising his concerns about the invoices with the firm, given that the amounts exceeded the estimates and that he had not been notified about this, as he should have been.
‘But in my view, once there was a cogent explanation for the increase, it was unreasonable for Mr Minkin to continue to refuse to pay, particularly since if he was dissatisfied with the amounts he could have challenged them.’
Elias added: ‘Any other view would compel a solicitor to carry on working for a client even though there may be little realistic prospect of payment.’
Commenting on the judgment, CKFT consultant Joel Leigh questioned whether the ‘entire contract’ doctrine in relation to solicitors’ retainers was now outmoded, but said that while it continues to apply it ‘remains a tricky area to navigate’.
He said: ‘We suggest that solicitors may avoid the application of the doctrine by suitable provisions in their retainers unequivocally providing contractual rights to payment before the conclusion of the litigation that the solicitor is retained to prosecute.’
Leigh said: ‘The case highlights the need for solicitors to ensure that their terms of business clearly provide them with adequate rights to stop work for a client who refuses to pay, and for clients to tread very carefully when considering refusing to pay interim bills but requiring solicitors to carry on acting.’
The full judgment is here.